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February 28, 2014

McDonald's Corporation recently filed their annual 10-K report for 2013 disclosing that the company opened 225 new restaurants in the United States during the past year andplans to open 250 new domestic locations in 2014.

However, the stated total number of restaurants in the USA increased by only 121 storesdue to closings. Two hundred and twenty five new locations sounds excessive in a nationalready saturated with McDonald's stores.

But is 121 too many new openings?

During the years 2005 through 2012 the number of total locations in the USA grew at anaverage of 60 stores per year. This must be one of the reasons those were good years, there was little cannibalization of the existing restaurant base.

Is it just coincidental that the year McDonald's accelerates that growth is the year same store sales increases came to a grinding halt? There are certainly many factors influencingsales trends and only McDonald's Operators in the field can judge the impact of new store openings.

But we do know one thing, mentioning new store numbers (225 in 2013 and 250 in 2014) is an effort to convince shareholders that McDonald's is still a growth company. While McDonald's management often discusses new store growth in other segments of the globeit's been more than a decade since management has willingly discussed restaurant growthin the USA.

This is likely a hangover from the disastrous "Convenience Strategy" of the 1990s..

February 24, 2014

Oak Brook gets asked this question every time a competitor does something with breakfast and McDonald's executives always give out the wrong answer.

Why can't the response be, "We have the two separate menus and due to the high volumes of our restaurants we think it's best to focus on doing the best job possible with each menu segment." That kind of statement is a positive without admitting the restaurants can't handle what they already have.

The problem is, there are now so many decision makers at McDonald's who lack any real restaurant experience (or have forgotten theirs) they don't understand that McDonald's was never meant to be all things to all people.

The other problem is - when they respond this way to reporters and analystsand then it doesn't work out - it goes down as a failure on management's part.

February 20, 2014

“If the entry-level wages go too high,the experience level, the skill
level is going to increase for people who are going to get those jobs,”
he says. “I’mfearful that teenage unemployment will go up even more
than it already is, that they will price out these entrylevel positions
for a vast majority of the workforce.”

February 18, 2014

"Big King aside, the chain’s other recent launches seemed shockingly familiar: Rib Sandwich is a riff on the McRib, Chipotle Chicken Wrap hit menus as a limited-time item around the same time the McWrap became available nationwide.Not to mention Burger King’s sausage, egg, and cheese breakfast sandwich, which was even marketed in ads as a rip-off of the Sausage McMuffin with Egg."

February 15, 2014

Electric vehicle charging stations are becoming more common, that's fine. But most of them are installed as close as possible to the entrance to the business.Why are these customers more important than those of us driving real vehicles? Do these people deserve special treatment because they supposedly have a smaller"carbon footprint"?

I still think that mobile ordering and payment will have minimal impact on QSRsthat already have service problems. This article about Taco Bell's initiative makesit sound like they've got it all together but the information comes from their "mobile lead", a person who wants to keep his job.

Check out this misguided strategy: "If the drive thru line is long, for example, theycan tap “in-store” pickup and go inside. Jenkins said a separate pick up window for mobile orders will be available to allow those guests to avoid the line." (Jeff Jenkins, mobile lead for Taco Bell)

I have two problems with that:

1) If there are lines everywhere maybe they should be working on improving service speed and worry about smart phone integration when the operation is improved?

2) Imagine standing in line at a QSR or standing around with your arms folded waiting for your food and a guy walks in, goes to a separate pick up window and is served instantly! That's demonstrating that one customer is more important than another customer and is a really, really bad way to run a business. That would my last visit to that QSR.

And get this quote, “Mobile is the biggest shift in QSR since the drive thru,” said Jenkins.

Absolute hogwash. But here again, we have someone with zero knowledge aboutthe restaurant business "reinventing" a brand.

Since I operated McDonald's stores only a few hours drive from Golden State Foods'main distribution center I took the opportunity to put together a field trip so my managers and assistants could see the where those trucks come from.As a guy I'd always been impressed with the efficiency and mechanization of the GSFfacility. But, to my surprise, my largely female management team was not very impressed. In fact some were a little turned off and even a little grossed out by the hamburger patty line.As we discussed their reaction over lunch, I said, "Come on you guys, this is food andproducts you work with everyday". They explained there was noting wrong with thefood but as young moms they didn't' find food on such a large scale as something thatwas appealing. Nothing wrong with a box of 10-1 patties but thousands of pounds of beef moving down an assembly line? Not so much. So, if you're in the restaurant business - as you watch this video from McDonald's of Canada - try to look at it as if you only know about the food business from what you see at the grocery store. Does that Mom coming in the door with a baby on each hipreally want to see all that ground up chicken breast meat?

Big companies do funny things. First McDonald's spends millions advertisingespresso drinks only to to boost sales at Starbucks.Now Coke spends a fortune buying a Superbowl ad that irritates a whole bunchof Americans sending many people over to Pepsi. Maybe having too much money to spend on advertising gives one lousy judgement?

February 3, 2014

.Oak Brooker Kevin Newell recently wrote about the "ongoing evolutionof our menu".Who are these people who lack any real restaurant experience butthink they are smart enough to remake McDonald's? Maybe it's becausethe Wall Street types keep hammering on them for "innovation".This is the second time in recent history McDonald's has been "evolved"or "reinvented".In the early 1990s Jack Greenberg was CFO of McDonald's and moving quickly through the ranks. At a series of meetings with Operators aroundthe country he began his remarks with:"Those of us who weren't with you at the beginning of McDonald's areexcited to be with you during the reinvention of McDonald's".Operators in attendance asked each other - why does McDonald's need to be reinvented?Greenberg used this phrasing because he knew he was addressing peoplewith decades of real restaurant experience while he possessed no such experience. McDonald's veterans will remember that the Greenberg "reinvention"delivered six of the worst years in the company's history (so far).McDonald's is now in the middle of another reinvention. This time theclassic McDonald's system of simplicity, efficiency, and speed is beingcompletely discarded. Will this "evolution" go better than Greenberg's "reinvention"? Early results are not encouraging..